How to Avoid Running Out of Money on Retirement?

When you are a working professional and earning a regular source of income, it is quite feasible to manage your daily expenses. And if one is financially prudent enough, saving and investing can also be carried out on a frequent basis. However, this regular source of income comes to a halt when you retire. Unless one has planned effectively to enjoy the benefits of retirement, this cessation of a monthly income can lead to unpleasant circumstances.

Also, a large number of people underestimate the amount of money they will require during their retirement years. They only opt for low-interest pension schemes which do provide some money but not enough to enjoy a relaxed retirement lifestyle. Hence, they run out of money soon as their retirement years progress. This can be avoided with effective retirement planning. Let’s look at some tips on how that can be achieved.

  • Clear off your debts and liabilities 

Repaying your debts when you are no longer an earning individual is not an ideal scenario. Retirement is a period of rest and relaxation; liabilities and debts should be the least of your concerns. Therefore, you should clear your debts at least a few years before you retire to enjoy retirement benefits to the max.

If you are still young and at the start of your career, then remember to take loans with prudence. Loans should ideally be taken for appreciating assets, such as real estate, whose value increases with time. This way, you get a good return on your credit investment. Loans for assets that do not bring any value should be avoided, preferably.

  • Invest in a pension plan 

One of the most efficient ways to ensure a financially secure retirement is to invest in a well-designed pension plan, also called an annuity plan. Such a plan provides regular pay-outs at the frequency of your choice after you have retired. One can purchase pension plans around 5-10 years prior to their planned retirement date. You can choose to pay the premium in instalments over the years, or you may opt for a single, lump-sum premium as well.

If you are late to the retirement planning party, then do not fret. Most pension plans have an immediate annuity option, wherein you pay a lump-sum premium once and begin receiving pay-outs within a year. A notable feature that you can avail with these plans is the return of purchase price option. As per this option, if the primary annuitant passes away, the amount invested by them is returned to the nominees as a death benefit. On the other hand, if they survive the maturity of the policy, the invested amount is returned as a survival benefit. Thus, pension plans are one of the many types of life insurance policies you can benefit immensely from in your retirement.

  • Create a long-term wealth generation plan 

When planning for retirement, one must keep in mind the inflation rates. Simply saving may not help you beat inflation. One must invest in a good wealth creation plan. Nowadays, there are life insurance plans that have an investment component as well.

A ULIP (Unit-linked Insurance Plan) helps you invest in the markets and generate wealth over the long-term while also giving you the assurance of a life insurance plan. Your premium is used to invest in the instruments of your choice and also to build a life cover corpus that will help your loved ones in your absence. As per the performance of your funds in the market, you gain returns. These returns, if reinvested over a long period, undergo the compounding effect. By the time you retire, you would have amassed a huge corpus to ensure a financially smooth retirement life. Thus, you must consider these types of life insurance policies as well when planning for retirement.

Along with these major steps, one must also exercise financial discipline in small ways. Regular savings, tax planning, reviewing finances periodically, upskilling oneself professionally to enjoy consistent hikes at work, etc. are some ways you can enjoy a financially secure present as well as future.

Also, whether you plan to invest in a pension plan or opt for a wealth generation policy, ensure to review the risks present in the given products. Consult a financial advisor before proceeding.